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Rewarding Physicians Under New Revenue Models

John Harris

Many new revenue
models—including accountable care organizations, bundled payments, and pay for
performance—are intended to generate a pool of surplus/incentive funds. Often,
this pool will be split between a hospital or hospitals and physicians, and then
the physicians’ pool will be allocated among participating physicians.

Part of developing a
program under any new revenue model is hammering out the agreement with the
physicians on how those surplus funds will be divided. This can be perilous
territory—you don’t want to look petty or endanger your relationships with
physicians. Rather, you want your physicians to say, “That allocation seems
fair.” Getting this response requires a little planning.

The first question is
whether any surplus or incentive funds will be used to cover start-up
investments and operating costs. Although the hospital may perceive this
approach as reasonable if it is investing to get additional revenue, the
physicians may see this investment as part of what the hospital ought to do
anyway (e.g., have good IT to support its contracting efforts).

It also is important to
consider who bears the risk for losses if there are any. This consideration may
be tied to how the surplus is split between hospitals and physicians—if the
physicians are willing to bear risk, they may merit a higher percent of any
surplus.

Once you’ve determined
the split between hospital and physicians, you have to tackle how to divide the
physician surplus pool among physicians. Hospitals should adhere to five key
principles in designing incentive distribution models:

Fairness

Transparency

Simplicity

Frequency of distribution

Physician performance on the measures that determine how well the pool is
funded

These principles are
best addressed through engaging in thoughtful discussions with physicians,
comparing options, and agreeing on approaches that can be easily explained
throughout the physician community. A commitment to these efforts not only will
yield trust and support of your physicians, but also may help you distinguish
your organization from competitors. View case study examples of efforts in this area here.

John is a
principal, DGA Partners, Bala Cynwyd, Pa., and a member of HFMA’s Metropolitan
Philadelphia Chapter.

Many new revenue
models—including accountable care organizations, bundled payments, and pay for
performance—are intended to generate a pool of surplus/incentive funds. Often,
this pool will be split between a hospital or hospitals and physicians, and then
the physicians’ pool will be allocated among participating physicians.

Part of developing a
program under any new revenue model is hammering out the agreement with the
physicians on how those surplus funds will be divided. This can be perilous
territory—you don’t want to look petty or endanger your relationships with
physicians. Rather, you want your physicians to say, “That allocation seems
fair.” Getting this response requires a little planning.

The first question is
whether any surplus or incentive funds will be used to cover start-up
investments and operating costs. Although the hospital may perceive this
approach as reasonable if it is investing to get additional revenue, the
physicians may see this investment as part of what the hospital ought to do
anyway (e.g., have good IT to support its contracting efforts).

It also is important to
consider who bears the risk for losses if there are any. This consideration may
be tied to how the surplus is split between hospitals and physicians—if the
physicians are willing to bear risk, they may merit a higher percent of any
surplus.

Once you’ve determined
the split between hospital and physicians, you have to tackle how to divide the
physician surplus pool among physicians. Hospitals should adhere to five key
principles in designing incentive distribution models:

Fairness

Transparency

Simplicity

Frequency of distribution

Physician performance on the measures that determine how well the pool is
funded

These principles are
best addressed through engaging in thoughtful discussions with physicians,
comparing options, and agreeing on approaches that can be easily explained
throughout the physician community. A commitment to these efforts not only will
yield trust and support of your physicians, but also may help you distinguish
your organization from competitors. View case study examples of efforts in this area here.

John is a
principal, DGA Partners, Bala Cynwyd, Pa., and a member of HFMA’s Metropolitan
Philadelphia Chapter.

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